Potential auto tariffs ‘on Korea’s mind’

Trade analysts shared their perspectives on how the Trump administration might deal with South Korea as the U.S. weighs whether to impose auto tariffs.

Potential auto tariffs ‘on Korea’s mind’

Trade analysts shared their perspectives on how the Trump administration might deal with South Korea as the U.S. weighs whether to impose auto tariffs.

Potential auto tariffs ‘on Korea’s mind’

Trade analysts shared their perspectives on how the Trump administration might deal with South Korea as the U.S. weighs whether to impose auto tariffs.

By Brian Bradley | Jan 24, 2019

While U.S.-South Korea trade relations are now at the calmest point they’ve been since the start of the Trump administration, concerns persist about whether the U.S. will impose tariffs on automobiles and/or auto parts from its sixth largest trading partner, according to trade analysts. “This is on Korea’s mind,” Asia Society Policy Institute Vice President Wendy Cutler said Wednesday, referring to potential U.S. trade restrictions on cars and/or car parts. “I think it’s important that this is something that the administration will carefully consider, if and when they go forward with Section 232.” The Commerce Department is leading an ongoing executive branch investigation into the national security impacts of U.S. automotive imports pursuant to Section 232 of the Trade Expansion Act of 1962 and is due to submit its report on the matter to the White House next month, which would give President Donald Trump another three months to make final decisions on any trade remedies. Released Wednesday, an Asia Society issue paper co-authored by Cutler and former Korean Ambassador for International Economic Affairs Hyemin Lee recommended the U.S. exempt Korea from “existing and future action” under Section 232, including autos and auto parts. Imposing any such trade remedies would be inappropriate given that South Korea is a longstanding ally of the U.S., the authors wrote.

“At the time of this writing, bilateral trade relations are the calmest they have been since President Trump took office,” the issue paper says. “The pending decision on a separate Section 232 investigation on autos and auto parts imports, however, could quickly reignite economic tensions between Seoul and Washington, particularly if Korea becomes a target of import restrictions.” Speaking alongside Cutler and Lee during an Asia Society event at the Carnegie Endowment for International Peace Wednesday, former Rep. Charles Boustany, R-La., said he believes the U.S. is using the threat of 232 tariffs to eventually install tariff-rate quotas (TRQs) on autos and/or auto parts. TRQs are “from the playbook” the U.S. used with Japan in the 1980s, and the U.S.-Mexico-Canada Agreement (USMCA) includes TRQs on automobiles, noted Boustany, currently a partner at Capitol Counsel LLC, a policy consultancy in Washington, D.C. As deputy U.S. trade representative from 1983 to 1985, current U.S. Trade Representative Robert Lighthizer played a key role in the Reagan administration’s negotiations with other countries for quotas on products like steel, including from Japan, for instance. “I think there’s a high probability that [the U.S. is] going to impose 232 tariffs on autos and auto parts as a negotiating tool, particularly with Japan and the EU,” Boustany said. “How they manage this with South Korea is less certain to me at this point in time. But I’m concerned. I think there’s a tendency right now for this administration to continue to ratchet up tariffs to try to find a way to [get] concessions.”

During the event, Lee said 20 percent to 25 percent tariffs on autos and auto parts would disrupt manufacturing operations at U.S. production facilities in Georgia and Alabama, by extension, harming local U.S. economies. Kia Motors Corp. and Hyundai Motor Group, both headquartered in South Korea, own production facilities in West Point, Ga., and Montgomery, Ala., respectively. Recent amendments to the Korea-U.S. Free Trade Agreement (KORUS) doubled the number of U.S. car exports exempted from South Korean safety standards — as long as the vehicles meet U.S. safety standards — from 25,000 to 50,000 units per year. The countries also agreed to extending the United States’ phaseout period for its 25 percent tariff on imports of pickup trucks from South Korea through 2041, after the tariff had been set to expire in 2021. South Korea accommodated the U.S. auto sector in the KORUS renegotiation and doesn’t impose tariffs on U.S. cars while other governments do, Lee said during the event.

Further, the USMCA exempts Canada and Mexico — the two biggest sources of U.S. imports of automobiles — from any automotive tariffs, as long as imports from either country come in under quota, he said. Taking all this into account, “Korea has every reason to be exempted from auto tariffs,” Lee said.